A good time to invest in bitcoin

Quite recently I recommended not investing in bitcoin, because my cleaning lady who has no idea what to do when her computer freezes up, is investing in bitcoin. When the widows and orphans start buying stocks, it is time to sell.

Lately I have heard tell of thought criminals opening bitcoin accounts, because they noticed “Nazis” getting their accounts blocked, and figured that come the terror, they would need some money that could not be blocked.

That, people getting bitcoin accounts for actual monetary use, is a mighty good reason to invest in bitcoin. Time was when these people would have purchased gold or uncut diamonds.

Total value of Bitcoin it is currently around two hundred billion. People hold gold for roughly the same purpose as they hold cryptocurrency. It is reasonable that the total value of all crypto currencies should be comparable to the total value of gold, which is at present ten trillion.

But at the present moment, Bitcoin is where it is at. The aggregate value of all the various cryptocurrencies out there is dominated by aggregate value of bitcoin.

Which gives room for Bitcoin to rise by a factor of fifty.

This entry was posted on Monday, December 4th, 2017 at 08:26 and is filed under economics. You can follow any responses to this entry through the RSS 2.0 feed.
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If bitcoin can be used in real transactions to buy real things, and if scores of normies believe bitcoin stores value better than other currencies or assets (which it seems to) – it has both intrinsic and perceived value.

I can think of a whole lot of worse ways to park my money, and not very many that are likely to perform better.

It appears you changed your mind first because the cleaning lady and probably the shoeshine boy are buying bitcoin, and second time because you realized that the total nominal worth of the crypto-token universe is much less than the total worth of existing gold. You may be right but I dont follow your logic.

If there is only one crypto-token, and that token has a permanently fixed supply, that token is ideal money. But even one other token existing (and being accepted as money) undermines this ideal status. If two crypto tokens can be money, then 3 can, 4 can, an unlimited number can. It doesn’t matter if a given token has a capped supply if there is uncertainty about the total number of acceptable tokens and if new tokens are easily created out thin air.

The more bitcoin grows, the bigger the gang of people looking to prevent rival tokens from being accepted as money. This creates a first mover advantage that is far more secure than, for example, social networking websites. How many people would have ditched MySpace for Facebook if it meant putting their life savings at risk? I think as this crypto-currency experiment continues Bitcoin will continue to consolidate and build off it’s first mover advantage and “immaculate conception” origin myth. The “there can only be one” property of crypto money will become widely understood, and all alternative tokens will shunned. (For monetary purposes. Countless tokens will exist and have value for other purposes, but none of them will be considered genuine money.)

The number of metals scarce enough to act as substitutes for gold is very limited indeed. Silver’s the obvious choice for a (lesser value) gold substitute but in principle there’s no reason why platinum, palladium and rhodium couldn’t be used. Perhaps a couple more, perhaps half a dozen, but not an unlimited number.

A copper standard is fiat money because copper’s plentiful enough as to be effectively unlimited. Same with tin, aluminium, anything like that.

With cryptos, there’s literally no limit at all to how many viable blockchains could in principle be called into being by fiat.

(Usual disclaimer: metal based money isn’t necessarily very useful in 2017 so since there’s always going to be a paper front token involved, it’s highly unlikely any form of ‘sound money’ could be used under current conditions so all the calls to hoard gold coming out of the goldbug community are in fact rotten advice. Moreover, if some authority actually CAPABLE of instituting sound money came along, there’d be no need to back it with metal: fiat would do just fine.)

No one wants to lose their investment in Bitcoin by switching to another currency, which is why Bitcoin Cash and Bitcoin Gold are *forks* of Bitcoin. Their code says, “follow the same rules as Bitcoin up to block 475234, then apply these new rules”. Thus at the moment the fork happens, every Bitcoin user receives the same number of the new currency, which they can now spend twice if both currencies are widely accepted.

Come on Jim this is faulty thinking. Unless every person, institution and nation on Earth completely ceases holding any gold whatsoever, there’s no reason for the current dollar value of the world’s gold to be transformed into cryptocurrencies.
If cryptos achieve superior status to precious metals then you can expect maybe half that amount to migrate, which is (by your numbers) some five trillion, but looking at the reality of the crypto scene, the number of new credible cryptocurrencies (Ethereum, Litecoin, etc.) is likely to carry on increasing and, as of 2017 at any rate, the existing ones are likely to keep on inflating (Bitcoin Gold, etc.).
That means IF that magical five trillion of precious metals money moves to the cryptosphere, it’s going to have to out-weigh the increase in the supply of crypto-currency units before there’s any upward price/value move in one particular Bitcoin.

Seems highly unlikely to me.

For what it’s worth, which isn’t very much (we Austrians have a horrible track record, and we Reactionaries haven’t been doing very well with our calls over the past few centuries either!), I DO think a lot of people will flee the precious metals bubble (come on, $300 to $1200 an ounce? that’s about as ‘real’ as DOW-20000) and SOME of them will fail to learn their lesson and go straight into another ‘hedge’ position, including Bitcoin etc.
but it’s just as much of a dead end, for all the same reasons.

The fiat fiasco is a fait accompli now. We need to get used to it. Governments have abolished money and replaced it with an ad hoc redistribution and consumption vehicle. The correct ‘strategy’ for people with money is to obtain access to government. That’s not as easy as it sounds (look at firms like Carillion) but ultimately it’s how people get and stay rich in 2017. Not by hoarding gold, let alone bloody Bitcoin lol

Buttcoin are the cryptocurrency and cryptocurrency is the solution to government malfeasance. Whether you have 100k$ or 100M$, stocks are controlled by bankers, bonds are worthless, dollars are worthless, politicians get more expensive as the scope of government possibilities grows, and buttcoin are much easier to hide and transfer secretly than gold.

You are right that a young intelligent man should prefer to get into government instead of getting into mining.

Sorry I was a little unclear.
It’s not necessary to become a bureaucrat; nor is it necessary to become a contractor.
It’s sufficient to be understood by the local authorities as someone with whom they can do business.
You could be a disco, a (private sector) builder, a hair-dresser or a hot dog stand. The crucial strategy is to be in bed with whoever’s running the town: preferably from all parties.

It’s not good, it’s an acceptance of the legitimacy of social democracy AND it’s an acceptance of inevitable corruption and cronihood, but that’s what reality actually is.

Just as your natural right not to be assaulted has no value when you’re pleading with a robber not to kill you, your natural recognition of the illegitimacy of the inept, bumbling bureaucracy changes nothing when it comes to whether or not to destroy your livelihood for fun.

As the US government continues to behave irresponsibly, corruptly, and incompetently with regard to fiat money and the financial system, I expect the total value of gold and the total value of cryptocurrencies to rise.

The lawless attack on right wingers at Charlottesville was immediately followed by an attack on right wing money, which caused a rise in the value of both gold and cryptocurrency. But cryptocurrency rose more.

This is perfectly true and of course as a speculative (ie.temporary) investment, both of these are potentially sound.
As always the risk is institutional: gold’s been banned from private ownership before and will be again. Bitcoin could very easily be banned and the general public would all cheer if it was spun as a means to prevent tax avoidance by the 1% and/or curtail criminal commerce.

Long term the correct solution is a Moldbuggian ‘sound fiat money’ controlled by a SovCorp that had no interest in debasement of its own money.
Short of that, just buy whatever you can on a ‘for life’ basis – socks, electricals, blankets, that sort of thing; and the rest on an inflation-hedging basis (cigarettes, alcohol, canned food).

Go look at the balance sheet of the Eurosystem Jim.
A fiat like no other.
Look at line one of the asset side of the balance sheet.
It’s disconnected from any sovereign nation, does not rely on taxes or productivity, or military strength.
There’s you next generation fiat.
And when the ECB launch a QE into gold, and gold adds a zero (or two), it will be…as good as gold.
So get gold, nothing else.

You just sell it into the market.
The market will always be there: London, Zurich, Shanghai, New York.
The Euro bloc and the Chinese/Russians don’t play with paper gold, and they don’t need to, as they didn’t break a few international monetary agreements, as did the Yanks, when Nixon broke the gold/dollar tie.
Hence, US gold is in deep storage, won’t be utilised til post dollar collapse in 2031.
What do you think will happen to the physical gold price when the paper market breaks?

Government is today incohesive. If someone is part of the state he will lie, betray, and steal, and he will primarily lie to, betray, and steal from, those closest to him, who tend to be his fellow members of the government. Hence no gold remains in government coffers.

Cryptocurrencies are the tip of the civilizational pyramid. They require such supporting infrastructure that they are only possible in a highly complex civilization.

When the American civilization collapses,

Obviously the reactionary project is to preserve civilization through the collapse of the American state.

So betting on bitcoin is betting that the reactionary project will succeed, whether or not the reaction itself succeeds.

We don’t want the American state to collapse exactly, just replace the Republic with a Holy Emperor and a State Church. And then we are going to conquer the degenerate parts of the world and settle the barren and unsettled parts of the world that have currently been put off limits and made into “parks” (Antartica and the islands of Arctic) Because with the patriarchy restored, our elite, our military, our police, and our taxpayers are going to have high fertility, and the younger sons of the elite will need jobs.

And then we are going to colonize the solar system, then the stars. But I suspect that even if we succeed, by the time we get to installing the Holy American Emperor, one McDonald’s hamburger will cost one hundred trillion old US$.

The production of Windows compatible computers is decentralized, the production of Linux compatible computers even more so. They will keep running, even if the USA is overrun by screaming naked cannibals.

As for the internet, worst case outcome is that we implement a wireless mesh. Techies can, and did, implement the internet in an entirely decentralized manner.

During the dark age that followed the fall of the Roman Empire in the West, much less stuff was produced, and everyone was much poorer, and the technologies that most people used most of the time were much cruder, but no technology was entirely lost, and many were substantially improved, even if fewer people used the better quality stuff.

Bitcoin was originated by an international traveler with many identities and many passports (not me, alas). Bitcoin governance is now primarily located in mainland China, which is to say, located in the place most inaccessible to American power. A crypto currency is a crypto state, and the bitcoin crypto state is substantially influenced by white people who are not all the time located in white countries, or are located much of the time in white countries rather distant from the centers of US Government power. Location in China does not imply as much actual Chinese control as one might expect.

The trend from England to America is that important cultural things are lost in transmission, but most technologies tend to continue advancing, or, at worst, stagnating. If the baton is passed from America to China, I suspect that this will continue. Most really valuable English social technologies are going to be gone, as the Chinese can’t be carriers because they just don’t vibe, but material technology will either stagnate (in some realms) or continue roughly along its present path, if at a reduced rate and with even less paradigm-shifting innovation. This is subject to change should CRISPR come of age. In the short term, if America collapses, China will immediately vacuum up a large part of the globe with an emphasis on securing access to vital material resources not subject to American whimsy.

It is easy to muddle two separate issues. One is whether the “blockchain” technology that underpins bitcoin becomes more widely adopted. Blockchains, distributed ledgers that record transactions securely, may prove very useful in some areas of finance, and beyond. The second is whether bitcoin will become a widely adopted currency in everyday life. Here the evidence is weak.

P.P.S. If a stock doesn’t return a dividend, it’s a speculation, not an investment.

oh hey, it’s the ’90s. Let’s get some crystal pepsi and hit on coeds by telling them about how their family is trying to oppress then by expecting them to stay virgins until they’re with someone who wants to marry them but we’re going to show them what freedom from patriarchial norms feels like.

If a stock pays a dividend, the value of the stock to its owner is tied to the dividend. The dividend reflects the actual amount of money flowing through the company and the actual amount of profit generated by the company.

If a stock doesn’t pay a dividend, the value of the stock has no intrinsic value, but is whatever the market thinks that someone else is willing to pay.

So, yes: all stocks are speculations in the sense that the companies may not be around next year, but only dividend-less stocks are speculations in that you will only ever recoup the dollars you “invested” in the stocks if someone else is willing to pay an equivalent or higher price — which, if you haven’t noticed, has lately become completely and totally unmoored from reality.

Do you feel twice as rich as you did 4 years ago? Does the country you live in feel twice as rich as it did during the second reign of Obama? Then how is the DJIA twice what it was then?

Likewise the only intrinsic value in Bitcoin is the promise of a universal global currency, for which an upper limit of seven transactions per second is woefully inadequate. Bitcoin Cash raises this limit by a factor of eight and promises to increase it further in the future, yet it trades for $1545 vs. $11600 for regular Bitcoin. This shows that no one’s thinking ahead, just rushing in to get rich quick.

Again, we fall back to the problem that decentralized networks can’t scale, while centralized networks always submit to government control (e.g. Amazon giving up its fight against state sales taxes).

I agree that Bitcoin is a speculation. A stock may or may not be a speculation.

My question for Bitcoin enthusiasts: what is your best estimate for the fair value of a Bitcoin? Or if you can’t determine it, how would you derive it mathematically, if you had perfect information? What equation would you use?

Determining the fair value of a bond is straightforward: compare the bond’s coupon to the prevailing interest rate and discount it for risk of bankruptcy.

Determining the value of a stock is a bit more complex, but ultimately you’re discounting the expected future cash flows to shareholders. The problem is that no one knows the future, so those expectations can vary greatly, which is why stocks can move so much. But if you theoretically had perfect information about future cash flows, you could know exactly what any stock is worth.

But I’m not hearing any quantitative arguments that Bitcoin is undervalued. Or even a basis for valuing it with theoretically perfect information. Instead I’m hearing some sentimental arguments about the future of humanity, and Bitcoin is part of that future, so BUY BUY BUY.

Under the assumption that bitcoin becomes the dominant world currency, its price in dollars will be approx. $3-5M USD if my math is correct. (Total value of dollar denominated assets today ~$60T-$100T, max bitcoins ~20M.)

There is certainly such a thing as fair value. It’s a concept in economics, finance, accounting, and law. But I’m not interested in such word games.

But thank you for offering a basis for your estimate. I disagree, but it’s the first such attempt I’ve seen.

If that’s the approach you’re taking, I’d suggest multiplying that number by the percent of those assets’ value that is held in the form of money in the narrow sense (M0, in Fed terminology). The limitation of Bitcoin supply is only in this narrow sense.

M0 is about $1 trillion, which would imply a value for Bitcoin of $50,000 if it replaces the dollar entirely. Perhaps multiply that number by 4 or so if it also replaces all other currencies.

I don’t expect it will, but if it did, that’s probably what it would be worth.

Any money is a speculation on the continued prosperity of the economic order that gave it value in the first place. Fiat currency is a speculation on the continued prosperity of the state power that issued it. Bitcoin is a speculation on the continued prosperity of… what? the intrinsic usefulness of Bitcoin? algorithms in a computer? “the blockchain”? or the belief that there will always be a greater fool?

Is money valuable because other people believe it to be valuable? Yes.

Is that the only reason? No.

Does money multiply 15 times in value in a year? not during not-war, not-famine, not-plague, not-bolshie peacetime.

Why am I assessing the value of Bitcoin against the United States Dollar?

Will states, faced with tax avoidance and evasion, international “smuggling”, and mortal threat to their own fiat schemes, allow unregulated, uncontrolled, subversive alternative currencies to persist and proliferate?

If the Federal Reserve issues its own cryptocurrency, will Bitcoin retain its luster?

Bitcoin is a speculation on the continued functioning of the economy outside the state, and to which the state is hostile. Its major monetary (non speculative) use is evading Chinese currency controls and evading present and likely future US government controls.

If the Federal Reserve issues its own cryptocurrency, will Bitcoin retain its luster?

Every single person that I know of who is an actual end user, who is using bitcoin for monetary rather than speculative purposes, has good reason to believe that the Federal Reserve is hostile to him, and that if it had full knowledge of his doings would be murderously hostile.

>Every single person that I know of who is an actual end user, who is using bitcoin for monetary rather than speculative purposes, has good reason to believe that the Federal Reserve is hostile to him, and that if it had full knowledge of his doings would be murderously hostile.

What a ringing endorsement.

Look, man, I just assume that the government is omnipotent and omniscient, and most of the time I’m utterly unsurprised.

Yet damned near every god-damned thing is regulated by government words on papers and much of it either self-enforced by the community of the doing of the thing in question, or by some dude with a badge and in the employ of the government, or by a local HOA ordinance of one kind or another. Just recently I discovered that the cool new thing to do in the hip new suburbs is to ban people from hand-washing, waxing, and detailing their cars on their driveways because the three tablespoons of auto-wash soap in a bucket might drain into a nearby waterway.

Hipsters and their HOAs deserve each other. If constricted to only ruling themselves and commanded only to pay their taxes, I expect they will quickly tire of it.

People in high tax states with six figure incomes just got a tax increase, graduate students just got a tax increase, and the subsidy for buying electric cars just went away. So much for those guys’ total domination of everything.

I’m a heretic wallowing in sin, but there are other people here who would like some verses and exegesis. The Good Book mentions money many times. Presumably when ((Jesus)) drave the ((money-changers)) from the ((Temple)), ((he)) was making the point that the Temple is sacred and judentum is profane. However, many times, ((Jehovah)) demands sacrifices of specific value, though ((they)) don’t specify it in monetary units.

Glosoli, great to hear you reference “honest weights and measures”. If George Gordon were still alive, he’d be all over bitcoin. Bitcoin isn’t speculation. It represents “proof of work” and also a measure of electricity. Electricity may not be directly tangible, but it is a real thing. At current time, value of bitcoin is on par with the cost of electricity that it takes to generate it. So, it is a way for people to directly monetize the power coming into their homes.

Or maybe what is on par with the cost of electricity, is the cost of verifying a transaction (as opposed to the value of the bitcoin that each block generates)

Since ETH (ethereum) has a benevolent dictator who wants to “fuck shit up” for any “Nazis” who use ethereum, the silver standard to bitcoins gold standard will likely be something different but similar to ETH. Or else the anti-Nazi crowd will be pushed away from the levers of power in the ETH world.

Money is a bubble, though that’s an argument that is grating to some. See glosoli’s response above.

More precisely, money is a schelling point. People accept it because people accept it. It doesn’t matter if that Schelling point is reached by government force (fiat), scarcity and shininess (gold) or confidence in math (cryptocurrency).

We know in principle how to make crypto money untraceable, and we know in principle how to make cryptocurrency scalable. There has been intense research on these topics. Not aware of any altcoins that manage both at once, but they are on the way.

They already “fixed” the problem in Bitcoin Cash by expanding the block size, but it came at the cost of a hard fork, as the bubble money piles into the original Bitcoin. Or are we supposed to buy Bitcoin Gold, whose hash algorithm doesn’t give custom-made mining machines such a huge advantage over regular computers? Was that even a problem?

The more Bitcoin forks, the more chances you have to buy the wrong crypto-currency and watch your investment turn to dust. Like how Islam forked after Muhammad’s death; following the wrong fork makes you an apostate deserving of violent death and doomed to eternal hellfire.

Another sign that a bubble is topping is when the last bears finally give up and say, “OK, it’s time to buy”, like Jim just did.

Forking is an inherent problem with crypto currency, and solving it is a social problem, rather than a cryptographic problem: Each crypto currency is a crypto state, and that crypto state has to implement a functional crypto society and crypto belief system so that the important people are disinclined to fork.

Every atom of gold is exactly the same as every other atom of gold, but crypto coins are only the same because we agree to call them so.

I’m not sure about a lot of things but I am 100% sure that Bitcoin Gold is a shitcoin.

First and worst it’s pre-mined by the developers.

Second one of the big backers manufactures GPUs so it is built to cut out the ASIC miners – allegedly to make it minable by the everyone – but of course since specialized hardware beats general purpose hardware and the payout to mining is in proportion to the number of hashes you produce vs the total pool of hashes eventually someone will make ASIC chips (if it’s ever worth it). In the mean time everyone involved got super rich off of the dumb money who think they can rewind time and buy bitcoin at $3 by buying a new currency.

As I’m sure you’ve realized by now, your original reason for rejecting bitcoin as an investment was incorrect, and based on pre-M(oldbug)MT understanding of money. (though Carl Menger may have also promoted a similar theorem).

When the cleaning lady is investing in bitcoin, that means that it is a bubble (or at least overpriced). But it would be very bad if bitcoin were NOT overpriced, because it is pure monetary value. And you can’t wait for the new money to drop to a ‘reasonable’ price like you can with a stock, because if it loses value it leaves an opening for a competitor to steal its gains.

But on the point of crypto being sovereign, i’d have to disagree. The internet seems like a totally free place, but as we have seen with the domain registrars that is not completely the case. ISPs provide the physical infrastructure, and they are totally subject to the government. The infrastructure can be controlled, though not without collateral damage. And if bitcoin were a legitimate threat to the dollar, USG would have every incentive to control it.

And either way, the security of bitcoin is ensured by the miners, who also have substantial physical infrastructure. Leaving aside that the market is already dominated by a few big players, and that the government has massive computing power to use, after some time it will only be profitable to run bitcoin for the purposes of redistributing it. It may be controlled in a distributed manner, but even still there is no incentive for whatever 51% that controls it to do so in an honest manner. They need to redistribute just to run the server farms.

tl;dr: we’d be lucky if bitcoin became the new FED. The only other option is that it gets shut down.

> The internet seems like a totally free place, but as we have seen with the domain registrars that is not completely the case.

Namecoin is an endrun around the domain registrars, as bitcoin is an endrun around the federal reserve. The successful crypto currency will provide namecoin like capability, to ensure sovereignty.

And either way, the security of bitcoin is ensured by the miners

This is a very bad design flaw. We need a crypto currency where control is by weight of money, rather than by weight of computing power.

But how can one implement weight of money when the biggest accounts are likely deliberately disconnected from the internet for long periods, and often located in places where the internet is extremely bad, so that even when intentionally connected, are connected by a low bandwidth and highly unreliable connection?

Easy: We have client/peer arrangement. The client, seldom connected to the internet, and connected by a low bandwidth connection when it is connected, logs in to a peer from time to time. The peer is always on, and always connected to all the other peers by a very high bandwidth connection. A peer has influence over the currency according to the weight of the money controlled by its clients. Its clients can easily move from one peer to the next, taking influence over the currency and over the governance of the crypto currency from the previous peer and granting it to the new peer.

[…] the subject of Bitcoin. First, Jim reverses his recent declaration and has now decided that now is a good time to invest in Bitcoin. Astute readers will remember that some weeks ago, Jim advises against Bitcoin as an investment, […]